In August 2000 the Government
established the Khushhali Bank as part of the Government of Islamic Republic of
Pakistan's Poverty Reduction Strategy and its Micro finance Sector Development
Program (MSDP), with the objective to provide sustainable micro finance services
to poor and to enable them to stand on their feet and promote social welfare and
economic justice through community building. Khushhali bank is funded through a
joint venture between the Government of the Islamic Republic of Pakistan and the
Asian Development Bank, which provided a US$150 million loan to the Government
of Pakistan, US$70 million being used for micro-loans provided by KB.
Facilitated by the state bank of Pakistan's enabling environment as implemented
by its cutting edge regulations and a consultative approach for adapting the
evolving practices, the bank has not only strengthened its foundation but has
also set itself on the path of sustainable and quality growth. With in period of
8 years of its commercial launch, it has a presence in 85 districts of the
country through a network of 110 service outlets, recognized as largest retail
micro finance bank. I t has processed over a million loans cumulative worth of
Rs 10 bn across 600,000 households with a portfolio that is pre-dominantly rural
and includes the very poor and roughly 1/3 of the beneficiaries being women.
Bank is also penetrating fast into urban territories as its delivery systems
strengthen. However, despite these successes, the micro finance sector in
Pakistan is still at rudimentary stage of development and the current outreach
in the country is relatively low given the fact that nearly 25% of the country's
population is living below the national poverty line. To eliminate this,
Khushhali bank is playing the major role.

Recently, State Bank of Pakistan
converted the profile of the Khushhali Bank. SBP converted Khushhali bank into a
public limited company incorporated with the Securities and Exchange Commission
of Pakistan and licensed by the State Bank of Pakistan to operate under
microfinance institutions Ordinance 2001. The objective is to bring microfinance
institutions within the formal financial services industry to improve its
supervision, outreach and sector growth.

Bank has assets of worth Rs 6.85bn in
FY06, showing growth of 12.7% over last year. Banks' total borrower's portfolio
represents 92% of industry (exclusive of NBP portfolio). Bank earned PAT of Rs
23.3mn for the period ended 31-12-06.

KHUSHHALI BANK

Number of active Borrowers

227172

Number of women active borrowers

75725

Net loan Portfolio (Rs Mn)

2082.5

Number of loans outstanding

227172

% of women borrowers to KB total borrowers

33.3

Microfinance banks total

248091

KB borrowers to Total of MFBs borrowers

92%

Source: IBP Quarterly Journal Oct-Dec 2007

FINANCIAL PERFORMANCE

Khushhali bank has been profitable
since its inception except 2002 .Bank's advances (net) increased to Rs 2.08bn in
the FY06 from Rs 1.8bn in the previous year, showing growth of 12.7%, due to its
improving out reach. Markup income increased to Rs 685mn in FY06 from Rs 746mn
in the last year, exhibiting impressive growth of 44%. It shows bank's recovery
is improving. Markup expenses showing growth of 108%, amounting to Rs 158mn in
FY06 from Rs 76mn in FY05, due to increase in liabilities. Provision of bad
debts showing growth of 50% which is alarming for bank. Bank earned PAT Rs
23.3mn in FY06 from Rs 12.4 in the last year, growing at impressive rate of 88%.

FINANCIAL PERFORMANCE

(AMOUNT IN RS MN)

FY06

FY05

CHANGE %

Advances (net of Provisions)

2082.5

1847.6

12.7%

investment (net of provisions)

1369.4

1373.2

-0.3%

Total assets

6847.5

6163.5

11.1%

Markup earned

684.9

476.6

43.7%

Markup expense

158.5

76.1

108.3%

Net markup income

526.3

400.5

31.4%

Provision & bad debts written off

136

90.4

50.4%

Net markup after provision

390.3

310.1

25.9%

Total non-markup

268.6

222.4

20.8%

Administrative Expenses

626.2

506.2

23.7%

Total non markup interest expense

626.2

506.2

23.7%

Profit after tax

23.3

12.4

87.9%

Source: NBP economic bulletin July-Aug 2007

CONTRIBUTION TO ECONOMY

A study conducted by Asian Development
Bank Institute (ADBI) to assess the impact of micro-finance in Pakistan. The
results of study showed that Khushhali Bank's operations had positive impacts on
all social and financial indicators. It played pivotal role in fighting against
poverty. Program had strongly positive impacts on agriculture related income
generating activities, employment had generated in all sectors by enabling the
start up of household enterprises, Social and financial empowerment of women and
poor participants' access to medical treatment had improved.

These are the words said by Dr.
Montgomery, Research Fellow at the ADBI. "These findings hold promise for
the millions of poor households in Pakistan. If Khushhali Bank is able to
maintain its current path toward full financial self-sufficiency, client
households will continue to have access to microfinance services and receive
these benefits into the foreseeable future, regardless of the whims of donors
and the development community, the benefits of micro finance will spread
further".

CONCLUSION

Microfinance sector in Pakistan has
exhibited astounding growth for the last six years owing to conducive policies
and regulatory framework & remarkable steps taken by Government of Pakistan
towards the development of the sector to achieve it's first and foremost
Millennium development Goal "poverty alleviation". Khushhali bank is
playing imperative role in achieving above stated objective. Government and SBP
should ensure all policies are implemented effectively with supportive
regulatory environment to achieve sole purpose of micro finance and helps bank
to achieve operational objectives.

Khushhali bank should target women to
increase its ratio in borrower's portfolio because, according to one study,
women in Pakistan use micro loans efficiently and rate of recovery from this
segment is stands around 98% which is up to standard. It will help bank's in
achieving its social and financial objectives and contribute to economy.